I received 1099-MISC for IP royalties but there's a case that IP royalties can be entered as capital gains (SEC 1235). Of course, since a 1099-MISC was received, it must be entered, which I'll do. The amount is in box 2 "Royalties". This generates about 41% federal tax.
The trick I saw online is to go to "Other income" (under "Less common income >Miscellaneous income 1099-A, 1099-C") and enter a NEGATIVE amount as other income to offset the 1099-MISC and explain that is the amount will be reported as capital gains as per SEC 1235. THEN, I should enter the whole royalties amount as capital gains.
The problem is that entering a negative amount in Other Income that is equal (but negative) to the the 1099-MISC amount does NOT completely remove its effect. For example is $100,000 is entered in 1099-MISC box 2, then it would require a negative amount of -110,858 in Other income to completely offset it but that would attract unwanted attention and would be awkward to explain. Just entering -100,000 in Other income will help but not completely removing the effect of the 1099-MISC entry.
Is that a bug in TurboTax? Why doesn't an equal but negative entry in Other Income completely offset (remove) the effect of a 1099-MISC entry? If I hypothetically try the same thing but with a 1099-DIV entry instead of a 1099-MISC entry, an equal but negative entry in Other Income DOES completely offset the 1099-DIV amount (it works properly then). Why does it NOT work when it comes to 1099-MISC? Is that a bug? How to make it work?
